Wachovia Securities and Credit Suisse First Boston are set to lead a financing package backing Castle Harlan's acquisition of Caribbean Restaurants from Oak Hill Capital Partners, shifting gears on what would have been a dividend recap. The two banks were leading a dividend deal that had been marketed and was ready to execute, but Oak Hill decided to sell instead.
The recap would have paid out a $65 million dividend to Oak Hill, while the new transaction is valued at $340 million. "Once people knew we were in the market with the recap it made sense to take a look and see whether or not an attractive financing market could provide an attractive exit for the seller and attractive financing for the potential buyer," noted Tyler Wolfram, a partner with Oak Hill.
| David Pittaway |
It was a quick turn in a market that has seen plenty of dividend deals and too few outright sales. "Dividend deals in the high-yield market have sort of dried up so that would probably push people to do more sales," noted David Pittaway, senior managing director with Castle Harlan. "You do a dividend deal if you think you've held a company a while, its grown in value, you think you will get some money out of it, but want to hold it longer." Oak Hill owned Caribbean Restaurants for five years. Pittaway declined to comment on the details of the new financing, but he did say all of the Oak Hill debt will be refinanced. "We have commitment papers for the necessary debt financing for the transaction to proceed," he said. "That was part of our proposal to Oak Hill when we made an offer for the company."
Pittaway said his organization is very familiar with the Caribbean Restaurants business. "We knew about this company for a long time. When it was sold in 1996, we were interested. When it was sold in '99 to Oak Hill, we were interested and involved in the process," Pittaway said. "We have in fact had a long relationship with the management of the company and have been talking with them for years."
The $260 million recap, led by Wachovia and CSFB, priced but never closed. "When we were presented the opportunity to sell the whole business, obviously the execution was enhanced by the fact that CSFB and Wachovia had already circled a debt financing," Wolfram said. Castle Harlan is actually going to use a slightly different structure, which will be five-and-a-half times total leverage, 3.9 times senior, Wolfram added.
The recap launched March 17 (LMW, 3/22) and was tweaked during syndication (4/5). "We ended up increasing the size of the first lien because there was good demand," Wolfram noted. The $125 million first-lien "A" loan was upsized to $150 million from $125 million, while the second-lien term loan decreased from $107 million to $80 million. In addition to the size change, the second-lien flexed up to LIBOR plus 6 1/2% from LIBOR plus 5%. "It was a more attractive weighted averaged cost-to-capital for us to do it that way," Wolfram said, explaining the changes. The "A" loan and $30 million revolver were both priced at LIBOR plus 3%.